When the Government terminates a contract for default (“T for D”), there can be a series of nasty consequences for contractors. Among other things, the contractor may be liable for actual or liquidated damages and for excess costs of reprocurement or completion; the contractor can be suspended or debarred; and the Government is not liable for the costs of unaccepted work and is entitled to the return of progress, partial, or advance payments. In contrast, when a contract is terminated for convenience (“T for C”), the contractor is usually entitled to the costs of goods and services furnished, demobilization costs, and a reasonable profit on the work performed. Also, because a T for C is not a breach, neither party is liable for lost profits or other damages allowed for breach of contract.

Default, directional sign

Suffice it to say, a contractor has a big incentive to fight a T for D—and try to have it converted to a T for C (which is the remedy if a T for D is not justified under the circumstances). Recently, the ASBCA issued parallel decisions denying the Government’s motions for summary judgment in a contractor’s challenges to T for Ds, finding in both cases that the Government had not established a prima facie case that the termination was justified. The Board’s opinions in the Capy Machine Shop, Inc. cases may prove useful to contractors challenging a default termination.
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